Sweetness follows. A rough guide towards a sustainable cocoa sector

Transcription

1 Sweetness follows A rough guide towards a sustainable cocoa sector

2 Content 1. Introduction 2. The cocoa sector 3. Unsustainable practices 4. Sustainability initiatives 5. Comparison with other commodities 6. Complementary trends 7. Conclusion 8. Recommendations Sources

3 1. Introduction The cocoa sector is widely recognized as being an imperfect market that is facing considerable sustainability challenges on the social, economic and environmental fronts. Cocoa plays a crucial role in the livelihoods of millions of rural households across the developing world, and this tropical commodity has the potential to lift many out of poverty. In reality, however, cocoa farmers like the producers of other commodities receive only a fraction of the retail value of global chocolate sales. The cocoa supply chain is a long one: it passes through a complex trading network comprising a large number of intermediaries (e.g. collectors, traders, exporters, processors and manufacturers) before it reaches the consumer, who increasingly expects assurance of responsible social and environmental production from their chocolate brands. Given the wide array of challenges to sustainability in the sector, it is not surprising that a range of initiatives, programmes and systems have been developed to deal with specific pieces of the sustainability puzzle. The transformation of the cocoa industry into a sustainable economic sector presents an extraordinary challenge to all the stakeholders involved. Cooperation between producers, NGOs, governments, traders, processors and manufacturers is necessary in order to develop these initiatives to their full potential and thus improve the working and living conditions at the beginning of the cocoa chain. This report presents an overview of the world cocoa market and its main stakeholders. It first details the sustainability challenges facing the cocoa sector, then provides an overview of initiatives to manage sustainability in the cocoa chain. It also presents lessons from other commodity chains (e.g. the coffee and timber chains) in order to illustrate the possibilities. Recent developments and trends show the paths towards sustainable cocoa production. Without promoting one initiative or another, various critical issues are addressed in the conclusion and recommendations. 2. The cocoa sector The cocoa tree evolved in the tropical rain forests of the Amazon basin. Evidence of the usage of cocoa beans dates back as far as 1000 BC, when wild forms of the cocoa tree were cultivated by Meso-American Indians in small, diversified gardens in what are now Belize, Guatemala, Honduras and Yucatán. Nowadays, cocoa is an internationally traded commodity and the key ingredient of chocolate. There are two main varieties of cocoa tree: the Criollo variety which produces sweet and special quality cocoa and the Forastero variety, which produces bulk cocoa. Criollo cocoas are grown mostly in Latin America. Their share of world production, however, is very small. Forastero cocoas are mainly grown in Africa and Asia. The main cocoa producing countries are Indonesia, Nigeria, Cameroon, Brazil, Ecuador, Malaysia, Ivory Coast and Ghana (with the last two accounting for almost 60% of global production). In 2006, the world s total production of cocoa beans was 3.6 million tonnes. About two thirds of global cocoa production is used to produce chocolate and confectionery. The cocoa chain is a labour-intensive chain. The International Cocoa Organization (ICCO) estimates that 90% of global cocoa production is produced by some 3 million smallholders. Total worldwide employment in primary cocoa production is estimated at 14 million workers. It is thought that in West Africa there are 1.2 to 1.5 million cocoa farms, with an average size of 3-5 hectares, employing 10.5 million people. The cocoa 3

4 Figure 1 The cocoa chain Farms Cocoa beans Traders Cocoa grinders Cocoa hulls Cocoa liquor Cocoa butter Cocoa powder Feed industry Confectionery industry Cosmetics Food industry Poultry feed Chocolate, confectionery Cream, soap Drinks, ice cream, biscuits, etc. Supermarkets and other shops Consumers bean is grown and processed on these farms using labourintensive methods, and its sale is often the main source of family income. Larger scale cocoa plantations exist mainly in Brazil and Indonesia. Cocoa is generally exported in the form of dry beans. The farmers production is purchased by dealers and exported by registered exporters or government marketing boards. Sales are effected through contracts or futures markets, principally in New York and London. The market distinguishes between bulk cocoas and fine flavour cocoas. The latter have a preferred flavour or other characteristics, and thus receive a price premium. The process of producing cocoa liquor, butter and powder is known as grinding. A part of the cocoa liquor is sold to chocolate manufacturers; the rest is pressed to extract cocoa butter and cocoa powder. To produce chocolate, cocoa liquor is mixed with cocoa butter, sugar, milk and emulsifying agents. Cocoa butter is also widely used in such cosmetic products as moisturizing creams and soaps. Cocoa powder is used on a large scale by other food industries for the production of drinks, desserts, ice creams, spreads, sauces, cakes and biscuits. The by-products of the cocoa beans the husks and shells are used as organic mulch, soil conditioner and poultry feed. Traditionally, most cocoa beans are processed in the United States and the Netherlands: each country processes over 400,000 tonnes per year. As with other commodities, one of the key features of the cocoa chain is the growing dominance of multinationals in trading, processing and manufacturing activities. Although there are a large number of companies involved, a small number of well-known multinationals dominate the market: between them, Cargill, ADM, Barry Callebaut, Petra Foods and Blommer account for more than half of the total trade and grinding activities. Nestlé, Mars, Hershey, Kraft and Cadbury Schweppes are the main producers of chocolate confectionery. Global consumption of chocolate and other cocoa products is dominated by Europe (53%) and North America (26%). In 2005, the average consumption of chocolate confectionery was 4.3 kilos per head. It is expected that the demand for cocoa will increase in, for example, Russia, Japan, Brazil and China. The retail sector is the main distribution channel for chocolate products. A consumer can choose from a bewildering variety of different brands and supermarket private label chocolate products. 4

5 Figure 2 Cocoa stakeholder organizations Producing countries Traders Processors and manufactures International Cocoa Organization (ICCO) The Cocoa Producers Alliance (COPAL) 1. London International Financial Futures Exchange (LIFFE) 2. Options Exchange New York Coffee, Sugar and Cocoa Exchange (NY CSCE) 1. The Federation of Cocoa Commerce (FCC) 2. Cocoa Merchants Association of America (CMAA) European Cocoa Association (ECA) International Confectionery Association (ICA) Chocolate Manufacturers Association (CMA) Association of the Chocolate, Biscuit and Confectionery Industries of the EU (CAOBISCO) An intergovernmental organization set up in 1973 to implement the international cocoa agreement. At present, 42 countries representing 80% of the worldwide production and 70% of the worldwide consumption are signatories to this agreement. The first mention of a sustainable cocoa economy can be found in the International Cocoa Agreement An intergovernmental organization that unites the cocoa producing countries. Its members are: Ghana, Nigeria, Brazil, Ivory Coast, Cameroon, Dominican Republic, Gabon, Malaysia, Sao Tomé, Principe and Togo. COPAL focuses on sufficient supply at good prices, technical information, improvement of the mutual socio-economic relations and the promotion of cocoa consumption. Commodity exchanges. The cocoa contracts are meant to eliminate the price risk (hedgers) and are bought and sold for purposes of speculation (speculators). Only 1.5-2% of the total number of contracts bought and sold on the LIFFE result in a physical delivery of cocoa. The FCC is a European system for closing cocoa contracts. Its purpose is to monitor the cocoa trade via the harmonization of cocoa contracts and the provision of arbitration services. In the USA, the CMAA is the agency to contact for the international trade. A relatively new trade organization representing the European cocoa sector. Its members are engaged in the trade of cocoa beans, the storage and distribution of cocoa beans and their processing into paste, powder and butter, and the production of chocolate. A worldwide forum in which more than 2,000 companies in 23 countries are represented. The members include the CMA (Confectionery Manufacturers of Australia), the ABICAB (Brazilian Chocolate, Cocoa & Confectionery Manufacturers Association), CAOBISCO and CMA. An organization for the processors and manufacturers of chocolate in the USA. The purpose is to carry out joint research (American Cocoa Research Institute; ACRI), to provide information about chocolate and to stimulate its consumption. The members represent 90% of the trade in the USA. The World Cocoa Foundation was set up in 2000 to support farmers in the cultivation of cocoa. A sector association at the European level for manufacturers of chocolate, cake, pastry and sweets. Together, its members process 50% of all the cocoa beans that are produced. 5

6 Figure 3 Main cocoa producing and processing countries, and the main processing and manufacturing companies Cocoa Chain Mainstream Chain Cultivation Country Volume % Per 1000 tonnes in 2005/06 1 Shares in 2005/06 2 Ivory Cost Ghana Indonesia Nigeria Cameroon Brazil Trade Company Volume % Totals in 2006/07 4 Shares in 2006/07 Cargill ,2 Olam ,5 Touton ,1 ADM ,1 Continaf ,5 Noble ,2 Grinding / processing Country Volume % Per 1000 tonnes in 2005/06 5 Shares in 2005/06 Netherlands ,5 USA ,3 Cote d Ivoir ,4 Germany 302 8,7 Brazil 223 6,4 Company Volume % Per 1000 tonnes 6 Shares in 2006 Cargill ADM Barry Callebaut Petra Foods Blommer Confectionary Company Volume % Total sales 2005 US$ billions 7 Shares in 2005 Nestle 6,9 10,2 Ferrero 5,5 8,2 Cadburry Schweppes 4,2 6,1 Mars/ Masterfood 3,3 4,8 Hershey 3,1 4,6 Remarks 1. Table: top 5 of most important countries/ companies with assigned volumes and %. - Footnote: Euromonitor International ICCO Annual Report 2005/ UNCTAD Infocomm 3 ICCO Annual Report 2005/ declared for export from Ivory Coast ( zibb.com/article/ /DJ+Tables+Of+Ivory +Coast+Cocoa+Export+Decl arations+to+jun+9) 5 ICCO Annual Report 2005/ Oxfam Novib, Euromonitor International Cocoa resources in consuming countries, ICCO UNCTAD infocomm

7 Kraft 2,5 3,6 Lindt 1,8 2,6 Consumption Country Volume % Per 1000 tonnes in Shares in 2004/05 9 United States ,9 Germany 277 8,5 France 246 7,5 UK 220 6,7 Russian federation 184 5,6 Japan 152 4,6 Company volume % RBS Eur mio Shares in 2005 Wall-mart ,9 Carrefour ,8 Metro ,9 Tesco ,1 Ahold of Kroger of Seven Eleven ,1 Trade flows of Cocoa beans and butter 7

8 3. Unsustainable practices The importance of commodity sectors as vehicles for poverty reduction and sustainable development is evident: these sectors have not only a positive economic impact on but also a closely related social and environmental significance for the overall development of communities. Cocoa is an important commodity in terms of value traded globally, and plays a crucial role in the livelihoods of millions of rural households across the developing world. In addition to the 3 million small-scale cocoa farmers who depend on cocoa as their primary source of income, cocoa exports contribute significantly to foreign exchange earnings and government revenue. The concept of sustainable development in this realm includes such aspects as economic viability for farmers, environmental conservation and social responsibility. Translating these broad concepts into daily practice is strongly linked to the belief system of a stakeholder. Sustainability is interpreted in different ways at different levels of the cocoa chain: for a farmer, a guaranteed income is important; for a country, the volume and export revenues are significant; and for many consumers, a responsible production process is a major issue. In the cocoa sector, each of the pillars of sustainable development namely the social, the environmental and the economic pillar is threatened. The debate centres on specific topics within the three pillars, which are described in the following text boxes. Figure 4 The three pillars of sustainable development The social pillar: focus on forced labour and child labour Ten years ago, media attention was paid to children being trafficked and forced to work on cocoa farms in West Africa. As a result, politicians, government officials, social activists and representatives of the cocoa industry signed a protocol to oversee and sustain efforts to eliminate the worst forms of child labour in the growing and processing of cocoa beans and their derivative products in compliance with ILO Convention 182. The initial deadline to eliminate the worst forms of child labour and forced labour from West African cocoa farms (i.e. July 2005) was not met. Six years on, there is no tangible result on paper or in practice, and the discussion regarding social sustainability in the cocoa sector is still linited to the subject of forced labour and child labour. A holistic discussion is needed in order to improve the working and living conditions at the beginning of the cocoa chain. This approach implies paying attention to such issues as the right to organize and collective bargaining, gender and ethnic equality, prohibition of discrimination and equal pay for equal work. Collective action on the part of all stakeholders involved is necessary. The following example shows that philanthropy support of companies is valuable, nevertheless it cannot be an excuse to avoid corporate social responsibility throughout the cocoa chain. World Cocoa Foundation (WCF) is supporting programs that help to strengthen the communities in which cocoa farmers and their families live. These programs focus on education for children in cocoa farming communities and health issues like HIV/AIDS preven tion, and malaria. To date WCF supported two programs. A program of the International Foundation for Education and Self-Help (IFESH), the United States Agency for International Development and The Hershey Company on improving the quality and accessibility of education in farming communities in Ghana and Cote d Ivoire. So far the program has trained 3,396 teachers and provided improved quality of education for 137,033 primary and secondary school students. The CLASSE (Child Labor Alternatives through Sustainable Systems in Education) program aims at improving basic and agricultural education. CLASSE partners are Winrock International, Mars Incorporated, Norwegian Association of Chocolate Manufacturers, Cloetta Fazer AB and the United States Dept. of Labor. The program focuses on children ages To date, youth participated in the program. 8

9 The environmental pillar: focus on deforestation and soil degradation Small-scale farmers grow cocoa trees in hot, rainy environments, mostly in areas near the equator. Because cocoa is a delicate, sensitive crop, cocoa seedlings are often sheltered by other trees, such as banana plants, plantain plants, coconut palms or hardwood trees. Several environmental problems are related to the production of cocoa, namely deforestation, loss of biodiversity, soil erosion and the use of agrochemicals. - Conversion of primary forest habitat: estimates indicate that cocoa production is probably responsible for the loss of 8 million hectares of tropical forest. Future deforestation for cocoa production is likely to happen. - Soil erosion: erosion in cocoa agroforestry plots is likely to be higher than in natural forests because the leaves do not decompose quickly and they suppress other vegetation. Due to intensive cocoa production soils loose fertility, which explains why cocoa plantations move to fertile ground and are replaced by conventional agriculture. - Cocoa is originally a shade tree, and should be intercropped with other tree crops to maximize biodiversity conservation. Recently, a new high yielding cocoa variety called CCN-51 has been planted in Ecuador. This cocoa tree is resistant to many cocoa diseases and plant density can be nearly doubled, to 1,200 trees per hectare in mono-culture. Cocoa farming has a high potential to negatively impact the environment. Its impacts should therefore be addressed systematically and on a large scale. Compensation and rewards for ecosystem services (CRES) is a relatively new approach for achieving resource conservation and restoration. The World Bank s BioCarbon fund is one of the largest biodiversity CRES programs. This program aims to sequester carbon while promoting biodiversity conservation and poverty alleviation co-benefits. In cocoa there are a few examples that try to integrate CRES concepts. Conservation International and CIFOR are exploring how sustainable cocoa production can support biodiversity corridor management goals in West Africa (e.g. Kakum National Park Ghana). WWF s Macroeconomics Program Office has been developing Agroforestry/Carbon approaches in Africa with ICRAF and other partners. In addition CATIE (Costa Rica) has ongoing projects on biodiversity conservation and carbon sequestration in small indigenous farms in Costa Rica and Panama. Economic pillar: imbalance in revenue and power In the original and simplified sense, commodities were things of value and of uniform quality that were produced in large quantities by many different producers. A characteristic of commodities is that their prices are determined as a function of their market as a whole. As a result, the price a farmer receives is not within his or her control. The farmers gate price is dictated by the commodity exchanges, even though only 1.5-2% of the total number of contracts bought and sold on the exchanges result in the physical delivery of cocoa. Cocoa farmers receive on average 6 8% of the retail value of global chocolate sales, which are estimated at US$ billion annually. In relation to the estimated 3 14 million cocoa farmers and workers, this implies a yearly revenue of US$ 980 1,726 per farmer (and of US$ per worker) without deducting the expenses. Like other commodities, cocoa has the potential to lift many out of poverty. Realizing more margin through added value, redistribution of margins across the supply chain or creating new forms of ownership are ways for a farmer to realize more income. However, the question whether the cocoa farmer is achieving a viable income can be answered only for a specific location. An example of new market approaches that directly create more income for the farmers involved is the successful Divine Chocolate formula. The largest shareholder of Divine Chocolate Ltd is Kuapa Kokoo, the Ghanaian farmers cooperative from which it buys all its cocoa. Kuapa Kokoo holds 45% of the ordinary shares in Divine Chocolate. Mr Ohemeng Tinyase, MD of Kuapa Kokoo said, For us, farmer ownership always made Divine Chocolate special. For the first time our members benefit as owners of a wonderful chocolate brand, and not only as suppliers of excellent, fairly traded cocoa. 9

10 4. Sustainability initiatives While there is much work to be done, we are making progress and remain focused on the right issues, said David Zimmer, secretary general of the Association of the Chocolate, Biscuit & Confectionery Industries of the EU (CAOBISCO). In partnership with other key stakeholders, we must now build upon these successful programmes to help children, families and cocoa farming communities. The transformation of the cocoa industry into a sustainable economic sector presents an extraordinary challenge to all the stakeholders involved. Cocoa stakeholders have developed various initiatives, programmes and systems to deal with specific pieces of the sustainability puzzle (see Figure 5). Cooperation between producers, NGOs, governments, traders, processors and manufacturers is necessary in order to develop these initiatives to their full potential and thus improve the social, environmental and economic situation at the beginning of the cocoa chain. International multi-stakeholder initiatives such as the International Cocoa Initiative, the World Cocoa Foundation and the International Cocoa Organization face significant challenges to sustainable development at the production end of the supply chain. With these forums for debate and cooperation amongst policy makers, private-sector players and other stakeholders, there is the chance to design and implement an Projects in practice West Africa Farmer Field Schools Sustainable Tree Crop Programme SUCCESS Alliance ACCESSO Programme Upcocoa Project equitable and participatory cocoa trading system. By supporting NGO and farmer organization initiatives, it is possible to turn their stated commitment to sustainability into action. Certified Cocoa 8 March The Hershey Company is working to create a supplier code of conduct that goes above and beyond just cocoa suppliers. We are working with the code to build compliance from inside the company as well as our suppliers, said John Long, Hershey s VP of Corporate Affairs. We plan to be transparent about the code with shareholders. Our plan is to post it on our web site, posting it as we roll it out. Our objective is to be successful. Hershey Press Release Codes of conduct and the certification of cocoa have proliferated in recent years in response to the growing consumer concern about food production methods and the impact of these methods on the poor and the environment. Certification is the procedure by which a certification body gives written assurance that the quality of the cocoa and the production process have been assessed and that both conform to specified requirements. Codes of conduct require suppliers to meet standards on food safety, working conditions and environmentally friendly production. This market-based approach to the sustainable development of the cocoa sector has given rise to a number of opportunities for producers, for example training, access to new markets, and enhanced efficiency and revenues. The adoption and implementation of these codes could directly improve and protect the economic, social and environmental conditions of a cocoa grower. However, full access by those who are the most in need is restricted by various obstacles, for example limited demand, and investment and audit costs. For the cocoa sector, there are four global initiatives, namely Fairtrade, Organic, Rainforest Alliance and Utz Certified. Their characteristics are briefly presented in figure 6. This figure does not constitute an exclusive list of initiatives; other initiatives deserve discussion, but such is not possible given the limited scope of this report. 10

11 Figure 5 International multi-stakeholder initiatives Initiative Mission Stakeholders & funding Sustainability statement International Cocoa Initiative (ICI) Established in 2002 to oversee and sustain efforts to eliminate the worst forms of child labour and forced labour in the growing and processing of cocoa beans and their derivative products (ILO Convention 182 on the worst forms of child labour and ILO Convention 29 on forced labour). Governments, industry, cocoa producers, labour organizations and NGOs. Funded by its industry members. Today, let us each remember that children everywhere deserve a childhood, an education and an opportunity to escape the cycle of poverty Peter McAllister, ICI Executive Director World Cocoa Foundation (WCF) Started in 2000 as an industrydriven initiative to promote a sustainable cocoa economy through economic and social development and environmental conservation in cocoa growing communities. A partnership of industry, government, international agencies, trade associations and NGOs. Funded by industry and private foundations. The WCF supports programmes to make cocoa farming a sustainable, successful way of life for farming families. WCF-supported programmes drive sustainable cocoa farming. International Cocoa Organization (ICCO) In 2007, ICCO is organizing a Round Table towards a sustainable world cocoa economy. It is also compiling a database of ongoing sustainable cocoa initiatives. The Round Table will bring together all stakeholders in the world cocoa economy: cocoa farmers, managers of cooperatives, exporters, traders, processors and manufacturers, government officials, and non-governmental and other private organizations active in the cocoa and chocolate supply chains. ICCO members should be working collectively towards a world cocoa economy that is economically viable, ecologically sound and socially acceptable. The ICCO Round Table is funded by the Ghana Cocoa Board in conjunction with the Dutch Ministry of Agriculture, Nature and Food Quality. Cocoa Verification Working Group In a protocol it signed in 2001, the cocoa/chocolate industry made a commitment to establish a system to certify that cocoa beans and their products are being produced under fair labour conditions particularly without using child labour or forced labour. Independent of industry and governments. Funded by industry....the industry in partnership with other major stakeholders will develop and implement credible, mutually acceptable, voluntary, industry-wide standards of public certification, consistent with applicable federal law, that cocoa beans and their derivative products have been grown and/or processed without any of the worst forms of child labour. 11

12 Figure 6 Overview of the focus and commitment of the various stakeholders Stakeholders Farmers Companies/Industry Governments NGOs Trade Unions/ Consumer Groups International Organisations 1 Stakeholders involved 1 international organisation, research institute and other Stakeholders not involved 12

13 Initiatives Sustainability Indicators * Social Environmental Economic Corporate Governance Operational aspects Round Table for Sustainable Cocoa economy (RTSC) World Cocoa Foundation (WCF) International Cocoa Initiative (ICI) Certification programmes 1 Capacity building programmes 2 1 Certification programmes: Fairtrade, Rainforest Alliance, Utz Certified, Organic 2 Capacity building programmes, for example: West Africa Farmer Field Schools, Sustainable Tree Programme * Sustainability adapted from the CSR-Frame of Reference for corporate social responsibility developed by the CSR Platform. www. mvoplatform.nl 13 Indicators developed Indicators not developed

14 Figure 7 Cocoa production standards Fairtrade Organic Rainforest Alliance Utz Certified (in development for cocoa) Mission To ensure equitable trading arrangements for disadvantaged smallholders who are organized into cooperatives To create a verified sustainable agriculture system that produces food in harmony with nature, supports biodiversity and enhances soil health To integrate productive agriculture, biodiversity conservation and human development To implement a global decency standard for responsible cocoa growing and sourcing History and development Began in the Netherlands in 1970s as Max Havelaar. Now several national organizations under the umbrella of the Fairtrade Labelling Organization (FLO). Coffee was the first labelled product (1989) Began in the early 1970s as a farming movement and developed into an internationally recognized system Since 1991, the Rainforest Alliance and the Sustainable Agriculture Network have been developing and implementing best practices and standards for commodity crops Founded in 1997 with criteria based on scientific fieldwork. Utz Certified Foundation launched in 2002 Requirements for farmers Smallholders organized in democratically run organizations, ban on most toxic pesticides, integrated crop management Use of non-synthetic nutrients and plant protection methods, soil conservation Sustainable farm management, integrated pest management, worker welfare, community relations, biodiversity conservation through maintenance of shade cover or protection and restoration of native forest reserves Good agricultural practice and worker welfare, based on adoption of EurepGAP standards, ILO, traceability and food safety Label use 100% Fairtrade cocoa 95% organic cocoa Two types of label: % Rainforest Alliance cocoa 2. Minimum 30%-90% Rainforest Alliance cocoa with a seal indicating the percentage of certified cocoa 90% minimum Utz Certified cocoa Price premium Minimum price and fixed premium Minimum price and fixed premium Negotiable premium Negotiable premium 14

15 5. Comparison with other commodities The sustainability of a commodity chain has many dimensions. The balance of benefits and negative impacts is different for every commodity chain, and each commodity chain has its own geographical and social distribution. Therefore, the issues addressed by sustainability initiatives and the best approach to these issues also differ between commodity chains. Various characteristics of commodity chains play a role, for instance, product, production process, production chain, and the political and regulatory environment. A successful sustainability initiative for a specific commodity must deal with the commodity s specific characteristics: there is no universal solution. The way in which specific sustainability initiatives in other commodity chains deal with these characteristics can help to transform the cocoa industry into a more sustainable sector. Several examples are presented in figure 7. Cocoa is often compared to coffee, as the two hot drinks share several characteristics, starting with the production by small-scale farmers. The main sustainability issues are comparable, as is the market structure, with some dominant players active in both commodity sectors. But compared to coffee, cocoa is processed further and into a larger variety of products (which also contain other ingredients). Nevertheless, cocoa is recognizable to end consumers in most products, and therefore difficult to substitute. In this respect, cocoa resembles timber more than coffee. On the other hand cocoa butter can be substituted fairly easily, just as palm oil. Combining sustainability efforts with the sugar sector, which is used in many products in combination with cocoa, is also worth considering. Figure 8 Commodity characteristics Commodity Issues Characteristics Obstacles Solutions Coffee Social and economic benefits for small-scale producers and workers Pesticide usage Overproduction Palm oil Timber Sugar Land rights of local communities Biodiversity loss Environmental impacts Land rights of local communities Biodiversity loss Environmental impacts Social and economic benefits for small-scale producers and workers- Biodiversity loss Environmental impacts Many small-scale farmers and plantations Very volatile price Five multinationals buy 50% of green coffee production Consumers recognize coffee as end product New demand for use as biofuel Consumers recognize timber in processed products New demand for use as biofuel Consumers do not recognize palm oil as an ingredient Lack of dominant players in the timber market Heavy government regulation Market is not concentrated and is divided along national interests Establish parallel markets for Fairtrade and organic coffee Certification initiatives (e.g. Rainforest Alliance and Utz Certified) addressing the mainstream market Multi-stakeholder sustainable baseline standards: Common Code for the Coffee Community (4C) Round Table for Sustainable Palm Oil (RSPO) in the process of establishing production standards and certification system The Forest Stewardship Council (FSC) is a multi-stakeholder initiative that has established production standards and a certification system: FSC parallel market with high price premium Better Sugarcane Initiative 15

16 6. Complementary trends The increasing demand for sustainability in the cocoa sector is creating new market opportunities for farmers, industry and governments. Complementary trends in the cocoa market are driven by, for example, the supply of cocoa beans, the chain dynamics, cocoa substitutes and consumer demand. Supply is insecure due to the ageing of cocoa trees, the dominant position of Ivory Coast, and the potential devastating effect of such pests as witches broom and the cocoa pod borer. As a result, processors are focusing on sourcing new locations and developing pest-resistant trees and new insecticides. Furthermore, industry s increasing demands for efficiency and traceability are resulting in activities being shifted across the cocoa chain. The outsourcing of cocoa trade and processing by the chocolate industry, and the integration of processing and marketing activities by cocoa processors are going hand in hand with the development of smaller scale, dedicated processing facilities. This is resulting in a volume-driven cocoa chain and another parallel cocoa chain that is focused on value added products. The responses of cocoa growing countries to these supply dynamics and the increasing demand for cocoa are of the utmost importance to farmers. Especially the governments of Indonesia and Ghana regard cocoa as a high opportunity crop and are investing heavily in future production. Also the process of adding more value to cocoa growing, besides the traditional exporting of cocoa beans, is taking place. In recent years, the grinding capacity in such origin countries as Ivory Coast, Malaysia and Brazil has grown considerably. Although substituting other vegetable fats for cocoa is a threat to cocoa producing countries and farmers, it might create opportunities for mixed agroforestry systems and income diversification. In the European Union, Directive 2000/36/EC was implemented in The aim of this directive is to allow the use of up to 5% of a limited number of exotic vegetable fats in the production of cocoa. These fats are illipe, palm oil, shea, sal, mango kernel and kokum gurgi. The impact of this legislation on the global cocoa market is still limited, as only 15 manufacturers have incorporated cocoa butter substitutes in their recipes. However, as cocoa prices rise and manufacturers adapt their recipes, a future shift to vegetable fats can be expected. In the Unites States, the Food and Drug Administration (FDA) is in the process of changing the legal definition of chocolate in order to allow manufacturers to substitute safe and suitable vegetable fats and oils for cocoa butter. Currently, the FDA does not allow a product to be referred to as chocolate if it contains any of these ingredients. The public and some chocolate companies are against the proposal, as it would decrease the quality of chocolate and have a negative impact on cocoa farmers and cocoa producing countries. As consumer demand in a country is linked to the development of that country, it is clear that cocoa markets will emerge in Brazil, Russia, India, Japan and China. The consumer demand in Europe and the United States is changing towards increasing demand for specialty chocolate products, with high cocoa content or sugar free or natural sugar, and specific countries of origin. In recent years, new marketing concepts like Green and Blacks (dark organic chocolate bought by Cadbury s), Origin Chocolates (Valhrona) and Divine Chocolate have been marketed successfully. 16

17 7. Conclusion The growth in recognition of the importance of sustainability in cocoa production amongst producers, governments, companies, NGOs and consumers has put the cocoa sector at a crossroads. Based on our overview of the different initiatives, programs and systems dealing with specific pieces of the sustainability puzzle, it is clear none of them links the three pillars of sustainable development. With respect to the main initiatives, supported by the cocoa industry, sustainability is narrowed down to child labour, environmental conservation and agricultural production practices. Examples include the agricultural programs of the WCF and the attempts of the ICI to ban child and forced labour along the cocoa chain. With a view to promoting greater sustainability in the cocoa production and raise standards across the cocoa sector as a whole the following observations can be made: 1. The companies supporting the WCF and ICI are mainly the same, setting the agendas in different forums. 2. The stakeholder composition of ICI is relatively strong, integrating NGOs, companies, trade unions and institutional organisations. The WCF combines 70% of all industry players. 3. Both ICI and WCF concentrate to improve the cocoa production practices in West Africa, especially Ghana and Ivory Coast. The larger part of the value chain and producing countries (Congo, Nigeria) receive limited attention around sustainability. 4. The philanthropy support of companies is valuable, nevertheless it is not an excuse to avoid corporate social responsibility throughout the cocoa chain. 5. The existing initiatives to promote sustainability are project-based, non-transparent, not based on existing civil society structures, and operate country wise on a relative small scale. 6. Purchasing practises, transparency and governance are not tackled in any of these initiatives. Although each of the current initiatives offers some level of economic, social or environmental benefit to producers an integral approach towards a more sustainable cocoa sector is lacking. The Round Table on a sustainable cocoa economy of the ICCO is the first attempt from governmental side to bring together the different stakeholders in the cocoa sector to discuss the way forward. The Round Table offers the unique opportunity for all stakeholders to identify the characteristics related to sustainable production practices together, and define the tools and a common action agenda. In order to fully take advantage of these opportunities however, it is clear that a high level of cooperative action between stakeholders themselves and at the public policy level, will be necessary to enable the development of integral solutions. Agreement about what is minimally needed is the starting point to ensure an international level-playing field for sustainable cocoa. The four major global standards for cocoa like Fairtrade, Organic, Rainforest Alliance, Utz Certified all offer the possibility to companies, governments and civil society to support sustainable produced cocoa. The market share of certified cocoa is growing and offers new opportunities for the chocolate manufactures to credibly market sustainable produced cocoa, for instance the chocolate of Fairtrade Divine and Organic Vivani. Combining certified cocoa with sustainable produced sugar, both used together in many products is a future challenge for global standards and the industry alike. While analysing the different sustainability activities in the cocoa sector, the overall developments look promising. However, compared to other commodities like coffee and timber, cocoa is clearly lagging behind in organising the sustainability debate within the sector as a whole. In cocoa, minimum standards and/or codes of conduct as a mean for worldwide sustainable production, could help the industry to make their efforts transparent and at the same time guarantee better working and living conditions for the cocoa farmers and workers in Asia, Africa and Latin America. 17

18 8. Recommendations This rough guide on sustainability in the cocoa chain has revealed the inability of the different cocoa stakeholders to link the three pillars of sustainable development. Nevertheless, there is an urgent need to address the social, environmental and economic situations simultaneously and raise the standards to ensure quality cocoa now and in the future. The ICCO Round Table for a Sustainable Cocoa Economy presents an unique opportunity to all stakeholders to understand and jointly take action on the considerable sustainability challenges. The recommendations summarized below can be taken into consideration when developing specific strategies towards a more sustainable cocoa chain. Recommendation 1: In an effort to build shared understanding and approaches to sustainability in the cocoa chain at a global level, the ICCO can open up to non-private bodies e.g. NGOs, small-farmer organisations and labour unions. Key stakeholders can support government and industry to develop a public/private shared vision towards a sustainable cocoa sector linked to the national levels. At the national level, multi-stakeholder cocoa platforms can design specific action plans to develop and implement sustainable practices efficiently throughout the cocoa chain in their country. In order to make the discussion on a sustainable cocoa economy transparent and clear, all stakeholder groups in the cocoa sector are encouraged to develop a shared vision on a sustainable cocoa economy. Recommendation 2: Although around 3 million smallscale farmers are active in the cocoa supply chain, representation at (inter-)national level is lacking. Producer governments together with industry and NGOs have to create an enabling environment for small-producer associations and cooperatives to join and provide input in the sustainable cocoa debate. Recommendation 3: Internationally accepted legal frameworks such as the core labour standards of the International Labour Organization (ILO) and conventions on Biodiversity provide a basis for a sustainability framework in the cocoa sector. Governments are encouraged to ratify and enforce international, local legislation and taxation measures relating to a sustainable cocoa sector. Recommendation 4: Change is unlikely to happen unless the drivers in the chain recognise and accept their responsibility to contribute to the improvement of working and living conditions at the beginning of the cocoa chain. The confectionary industry, traders and other companies should take their corporate social responsibility serious and adhere to a decent code of conduct, incorporating the core labour rights of the International Labour Organization (ILO). Recommendation 5: The opportunity to link cocoa growing to new financial mechanism and climate change is an opportunity for the whole sector. By linking programs to sequestering carbon and biodiversity conservation as well as poverty alleviation an integral approach of sustainability can be realised. Projects in practice should be expanded to different cocoa producing countries to gain more understanding of the potential benefits and threats of this approach. Recommendation 6: To ensure the production of high quality cocoa now and in the future and bring many smallscale farmers out of poverty, the sustainable cocoa chain debate has to be incorporated in the broader world trade debate e.g. WTO (Trade and Environment Committee, Core ILO standards), UNCTAD, IISD (Sustainable Commodity Initiative), EU (Action plan for commodities) and U.S. Commodity Futures Trading Commission. 18

19 Important links and literature Sources - Chocolate, Sources Chris of Bright, figures/tables in: Good Stuff? A Behind the scenes Guide to the things We Buy, World Watch Institute, Washington, April Literature CAOBISCO-ICA 2007 see pdf/consumptionchoco.pdf Footnotes - Clay, Jason: World Agriculture and the Environment: A Commodity-By-Commodity Colofon Guide To Impacts And Practices, Consumer International: From bean to cup: how consumers choice impacts upon coffee producers and the environment, United Kingdom, CSRwire: WASHINGTON, DC- May 30, Global witness: Hot Chocolate: how cocoa fuelled the conflict in cote d ivoire, June ICCO: Annual Report 2005/ ICCO: Sustainable Cocoa Economy: a comprehensive and participatory approach, June ITC/UNCTAD/WTO: Cocoa: A Guide to Trade Practices, Laird, S.A., C. Obialor and E.A. Skinner; An Introductory Handbook to Cocoa Certification, a feasibility Study and Regional Profile of West Africa, Rainforest Alliance, New York, Novib/CREM: Sustainable Drivers for Change in the Cocoa Chains, UNCTAD: G-24 Discussion Paper Series, Commodities under Neoliberalism: The Case of Cocoa, The Haque, January The impact of directive 2000/36/EC on the Economies of those countries Producing Cocoa and Vegetable Fats other than Cocoa Butter, LMC, 2006, reports/chocolate/fullrep_en.pdf - The International Cocoa Initiative: Sources of figures Fig 1: Adapted from Profundo: Strategic analysis of the production chains of palm oil, rice and cocoa, 2006 Fig 2: Adapted from Novib/CREM: Sustainable Drivers for Change in the Cocoa Chains, 2006 Fig 6: Adapted from the CSR-Frame of Reference for corporate social responsibility developed by the CSR Platform, a coalition of Dutch Civil Society Organizations (CSOs) that are actively promoting CSR ( CSR%20frame%20of%20reference.pdf). The underlying items have been used to make an indication of the score for the five selected sustainability items: social, environmental, economic, corporate governance and operational aspects Fig 7: Adapted from Consumer International, 2005, p. 28 Fig 8: Adapted from Ministry of Housing, Spatial Planning & Environment (VROM): Increasing the sustainability of EU and Dutch Commodity trade through more effective policies, 2007 Colofon Text Coffee Coalition, Sjoerd Panhuysen, Bärbel Weiligmann, CREM, Anouk van Heeren, Oxfam Novib, Gine Zwart Cover photo Lineair Fotoarchief Photos istock, Crisja Ran GO, Tegenwind Design Crisja Ran GO, Amsterdam Graphs Crisja Ran GO Print Drukkerij Artoos, Rijswijk

20 Raamweg HL Den Haag The Netherlands T +31 (0) Comments and remarks please to b.weiligmann@koffiecoalitie.nl